“That statement doesn’t reflect what we experienced,” Ryan says. “There were tons of consumer complaints referred to the OCC by the states. I was regularly hearing from state regulators that sending complaints to the OCC was equivalent to a black hole. This resulted in the GAO conducting a study on the matter. The agreement they sent the states was not meant to be cooperative. It required the states to say ‘we surrender, we have no authority’. Their focus was not on cracking down on lending practices but rather facilitating the subprime business model of the biggest banks. The actions of the OCC weren’t meant to create a cooperative atmosphere.”

He pointed to the case of National City, a bank federally chartered by Hawke’s OCC. Here’s the Seattle Post-Intelligencer in 2008 on that (emphasis mine):

When state investigators spotted questionable loan practices, the feds rejected their help and informed the state that it had no business looking into the affairs of federally chartered institutions. Scott Jarvis, director of the Washington state Department of Financial Institutions, said his files are full of letters from federal bank regulators, bankers and other lenders politely telling his office to take a hike.

In a typical case in late 2002, state bank examiners believed National City Mortgage was violating the state’s Consumer Loan Act by charging extra fees on mortgages, said Kwadwo Boateng, the state’s chief bank examiner. When asked to explain the costly “discount loan fees, underwriting fees, processing fees and marketing fees,” National City Mortgage sought intervention from federal regulators, records show.

The investigation was stopped by federal decree.

At the company’s request, Julie Williams, general counsel of the federal Office of the Comptroller of the Currency, wrote National City a letter in January 2003 saying the state had no right to examine or even visit its offices. Because National City’s parent bank in Cleveland was chartered with the OCC, the federal agency pre-empted the state’s authority. National City attached Williams’ letter to a missive to the state in February 2003, asking state investigators to stay away.

And here’s the kicker. The federal agency didn’t go after the mortgage fee complaint because it had no authority to enforce state consumer protection laws, Boateng said.

Hello, regulatory capture!

Here’s The Wall Street Journal from 2007 (emphasis mine):

Federal regulators, meanwhile, have tended to focus more on the solvency of the institutions they oversee and less on individual consumer complaints. The case of Dorothy Smith, a 67-year-old from East St. Louis, Ill., illustrates how hard it was for individuals to get regulators’ help. In 2001, Ms. Smith, living on $540 a month in government benefits, was encouraged by a contractor to apply for a loan to finance home repairs. After two loan applications were rejected, a broker submitted a third showing that she had monthly income of $1,499 and was employed at a senior-citizens home though she had actually retired 10 years before, she said. The $36,000 mortgage that First Union National Bank (now part of Wachovia Corp.) approved for her required a monthly payment of $360.33 for 15 years followed by a “balloon” payment — when she would be over 80 — of $30, 981.48. Fees and closing costs came to $3,431.

When the contractor left work unfinished, Ms. Smith sought help from Land of Lincoln Legal Assistance Foundation, which complained to Illinois bank regulators. The legal aid lawyers say the loan required unreasonably high payments given Ms. Smith’s income and a balloon payment when she would be over 80 years old. The state forwarded her complaint to the OCC, First Union’s regulator, which responded in 2002: “We cannot intercede in a private party situation regarding the interpretation or enforcement of her contract … . The OCC can provide no further assistance.”

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.